Startups in Bangladesh raised about $35.58 million in the first three months of 2023, according to LightCastle Partners, a Dhaka-based research and business consulting firm.
Of that, e-commerce platform ShopUp alone raised about $30 million of the amount from UK-based lender Lendable and the local City Bank as debt financing, which is not typical startup funding, according to industry people.
So, the overall inflow of global funding for startups in the country remained very low in the first quarter of the year as the local and global economic downturn continued, they said.
Global inflationary pressures, macroeconomic disruptions and increased geo-economic fragmentation are causing shockwaves for economies across the world.
Covid-19 and the Russia-Ukraine war have exposed the fragility of economic interdependence affecting supply chains, commodity markets, and the flow of capital, LightCastle said in its “Bangladesh Startup Investment Report 2023: Embracing the Uncertainty” for Q1.
Furthermore, the failure of three banks in the US that fund startups — Silvergate Bank, Signature Bank, and Silicon Valley Bank — further casts shadows on global financing for emerging companies.
As a result, global startup funding declined by 50 per cent from $63 billion in January 2022 to $31 billion in January 2023.
Against this backdrop, Bangladesh has secured $35.58 million through 17 deals in the first quarter (Q1) of 2023, primarily spurred by small ticket funding from local investors.
“As global investors grow risk-averse and gravitate towards portfolio diversification, opportunities are emerging for Asian startups,” it added.
In early February, ShopUp announced that it had secured $30 million in debt financing from both local and global lenders. However, local analysts and experts say debt financing should not be considered as regular startup funding.
Debt financing is a kind of funding given to startups by any type of lender, including banks, for a certain period. It is like a traditional loan as a startup borrows the money and pays it back with interest.
Meanwhile, startup investments come from venture capital firms which in turn seek an equity stake in the business in the form of shares.
“Although it is not regular startup investment, it can be seen as a positive as the debt financing was secured from a local bank,” said a top executive of a startup wishing anonymity.
“There have been limited announcements of venture capital financing deals for later stage startups in recent quarters, which is concerning,” he added.
In Bangladesh, the tech-startup industry has enjoyed years of a boom driven by people’s increasing access to the internet, higher smartphone penetration and a decade of economic growth.
Now, the founders and executives of technology start-ups are facing a new reality as global venture capital investors are becoming cautious regarding investments amid rising inflation and widespread economic uncertainty, said industry people.
Bangladeshi start-ups raised $109 million in 2022, way lower than the $415 million raised a year earlier, according to LightCastle.
But progress in the tech-startup segment has received a blow since the start of the war in Ukraine as the Federal Reserve, the central bank of the United States, has started to increase the key interest rates to combat higher inflation, raising the cost of funds raised by venture capital firms.
“As the later stage funding has dried up, it poses a threat to scalability for some startups,” said AKM Fahim Mashroor, chief executive officer of bdjobs.com.
“This is because they will not be able to invest on acquiring new customers,” he added.
In the latest report, LightCastle identified that local investors have also amplified their contributions to the funding landscape.
“Among the 17 deals, 11 were led locally in small-ticket funding rounds,” the consultancy said.
Significant early-stage funding was observed in this quarter.
From a sectoral lens, the top three leading industries were financial services, sports and entertainment, and education. This serves as a testament to the growing technology adoption and sophistication of the local startup ecosystem.
In light of recent economic headwinds, Bangladeshi startups must learn to be agile with their objectives and activities, strengthen their financial discipline and practice thorough risk assessments.
As local investors continue to contribute towards the funding gap, such ongoing contributions can alleviate the gaps in global funding facing Bangladesh’s startup ecosystem, the report added.
“Startup funding in Q1 of 2023 fell around the world as was the case in Bangladesh. However, the overall demand for quality deals among companies in early stages still remains relatively high,” said Rahat Ahmed, chief executive officer of Anchorless Bangladesh, a venture capital firm.
“Founders solving key problems tied to the macroeconomic story should be able to successfully rise but valuation expectations should be tempered,” he added.
Ahmed then said most investors are looking for longer-term investments, so as long as the overall growth story is positive, these are short-term issues.
